More Politics and Oil in the News: Using Your Brain
As part of an energy bill passed in December 2007, Congress gave the Federal Trade Commission the expanded authority to pursue price manipulation in the oil markets in addition to prohibiting the disclosure of false information to federal agencies about oil prices.
In the news, the Federal Trade Commission said that the agency hoped to complete rules by the end of the year on how it plans to enforce a new law against price manipulation and deception in the oil-trading markets. One could question whether the end of the year is a little on the late side. Government doesn’t seem to be able to move on any action in a timely way.
As part of the first step to establish public consensus, the agency is asking for public comments on oil prices. Naturally, you would expect to hear about the impact of high prices and price gouging. The FTC will undoubtedly hear exactly what the nation expects. That isn’t news.
The media has declared that Capitol Hill is waiting to hear from the agency on the measure in an obviously political move, most likely on the part of Democrats, since they have been sponsoring and promoting the legislation during this election year. Couldn’t they behave themselves and try for a little honesty without trying to stir up more emotional debate?
Here is the bottom line on processing gasoline. Every barrel of oil contains 42 gallons. Each barrel is processed, yielding on average 21 gallons of gasoline. This could vary depending on whether sweet crude, sour crude or heavy crude is used for initial processing. Assuming that on a good market speculation day that the price of oil is $112.00 a barrel, the final cost per gallon is a mere $5.33 a gallon. Despite astronomical prices in the U.S. market currently averaging about $4.62 a gallon, the cost of gasoline is underpriced by a whopping 71 cents. The current market prices includes additional taxes along the way.
So who is to be congratulated? Perhaps Congress should congratulate the American public for being so savvy that they are able to economize enough to keep prices down to current levels. In Europe, gasoline prices are averaging about $8.00 a gallon. We don’t see that here.
Perhaps the oil companies should be congratulated. After they process the oil to a form that Americans can use to fuel their vehicles, the cost is lower compared to the remainder of the first-world countries unless you want to consider Saudi Arabia and Venezuela as first-world countries. In that case, these nations are enjoying prices of 45 cents and 18 cents a gallon respectively as major oil-producing nations.
Now the question may come to mind as to why these oil-producing countries don’t participate in the global oil-producing market? The fact is that 40 years ago we didn’t participate in the oil speculation market either. What keeps the U.S. from unplugging itself from the global oil speculation market and using its own fuel? The government does. They argue that we cannot produce enough oil here in the States even though they plan on doubling their pumping capacity on federal lands next year so that they can make more money on the spot market “for taxpayer benefit”. Who is making money now? Who will be making money then? The government will be making money on the side through the Interior Department through the minerals management program and the Strategic Petroleum Reserve as well as taxing gasoline on the distribution end.
Who benefits from high oil prices? The government does. They are heavily invested in the market.
Now let’s talk about where the oil companies make their money from a barrel of oil. Clearly, they aren’t getting rich from distributing gasoline alone based on the price on a barrel of fuel, yet big oil still manages to make money, even after processing at the refinery.
What gives? Fortunately for big oil, other products are derived from a barrel of oil that can used to make profits in other areas. Arguably, there are some processing gains as chemical alkylates are added to make the final products and some chemicals can be added to gasoline after processing for various and sundry reasons. Here is an approximate breakdown on the chart below:
You can see that jet fuel and a host of other products in the commercial market are used from that barrel of oil to keep the oil companies profitable even though technically, they are losing money on gasoline. The majority of products produced produce a handsome profit, although the high cost of jet fuel can certainly be argued. Oil companies do have something to do with the high cost of your airline ticket. The distribution system is not free either. Costs are born along the way by the current system in place including transportation costs. Many of the distributors in the chain are independent. Are oil companies bad guys for making money in the commercial market? That profit involves business to business transactions for the most part which don’t directly affect the consumer and certainly not for gasoline.
They are still a host of variables that are not accounted for in this article. However, the case cannot be made that oil companies are big bad boys that make huge quantities of money on gasoline. In fact, based on what TNTalk! has uncovered today, the cost of gasoline is heavily subsidized by product profit in other areas. So I ask the question again. Who is making the money?
Everyone is making money, including your wonderful federal government, all at your expense. Big oil is not the bad guy when the huge expense of filling your tank comes around. Are you feeling suddenly that perhaps that the government is pandering to you, the hapless consumer at the bottom of the government food chain?
The bottom line is that the cost of gas to fill your gas tank is a huge barrel of politics. Do you feel better now? Perhaps you feel like throwing a stone at your politician for misrepresenting a healthy measure of the truth? You are entitled to your hard feelings. The oil subterfuge is a large election year profiteering project for the benefit of the U.S. government. Whom is manipulating whom?